Defence Force capability in an era of tightening budgets

I wish to talk about how New Zealand is managing the effect on its defence force of the most challenging economic conditions seen in generations.
“New Zealand Defence Force capability in an era of tightening budgets”

Hon Dr Jonathan Coleman
Minister of Defence
Description: Government of New Zealand

I wish to talk about how New Zealand is managing the effect on its defence force of the most challenging economic conditions seen in generations.

This is a challenge which politicians and policy makers, militaries, and industry are grappling with worldwide and of particular relevance to those of us here today.

The global financial crisis and subsequent fiscal and sovereign debt crises are having a profound and lasting effect on economies in the developed world.

These difficult economic times have hit defence budgets that were in many cases already straining from ambitious projects with mounting costs and delays.

In contrast to us, our closest partner Australia has reprioritised defence spending to help return public finances to surplus as quickly as possible.

Canberra has also commissioned a new White Paper for 2013 that will consider the implications of Australia’s strategic and fiscal environment.

In the United States, the US Department of Defense has absorbed a budget cut of several hundred billion over 10 years, and faces the real possibility of further large cuts if sequestration proceeds.

And I know that reductions in defence spending are very much a live issue here in the United Kingdom.

In New Zealand, we pay close attention to the UK scene.

We may be a small South Pacific nation, but the similarities between us – based in historical ties and enduring shared interests and values – mean that the experiences of one are often valid for the other.

Public sector reform

This is often true in public policy – where we face similar goals and challenges.

Both New Zealand and the UK aim to maintain first class public services against an immediate backdrop of economic uncertainty, and a longer collision with demographics.

We are also both engaged in major public service reforms. In each case we are seeking a focus on the results provided by the State Sector, while driving down cost.

New Zealand has sometimes been called the laboratory for public sector reform, since innovative policies can be tested here, before being applied elsewhere.

New Zealand was a leader in public sector reform in the 1980s, and we are aiming to be at the forefront of reform again.

Improving public sector outcomes is one of our top priorities.

The New Zealand Government has set 10 challenging results, in five broad areas, which we expect the public service to achieve over the next five years. Each result is linked to specific and measurable targets.

The results we have selected relate to longstanding social challenges such as:

· long-term welfare dependence;

· youth education; and

· reducing crime.

To manage costs in the public sector, the Government has capped the size of the core civil service; and has fixed most departmental budgets in nominal terms.

We are also encouraging departments to share resources; and cooperate more closely.

New Zealand has one of the most fragmented public sectors in the OECD. As a result our equivalent of the Cabinet Office is being empowered to provide enhanced leadership and coordination.

Where it makes sense to do so, we’re merging departments. For instance our new Ministry of Building Innovation and Employment was partly based on the UK’s Department for Business Innovation and Skills.

Defence is a key policy area where New Zealand pays particular attention to UK developments.

Historically our three services of the New Zealand Defence Force grew directly from their counterparts in the UK Armed Forces.

They remain a natural model for the NZDF in terms of doctrine, standards, procedures, and Service culture.

This close historical connection continues to be reflected in our contemporary engagement:

we maintain a steady and valuable strategic level dialogue at the Ministerial and senior official level;
we enjoy a range of personnel exchanges and training activities;
we have signed a Memorandum of Understanding that is facilitating joint capability development (trucks, bridging equipment; and
when we operate together, our forces are natural partners. (Bosnia, Iraq, Afghanistan)

We also follow closely the UK’s experiences with defence reform, seeking to learn from your experiences with seeking efficiencies in the defence budget, and getting better results from defence procurement.

Let me turn to New Zealand’s recent experiences with defence planning and reform.

Defence White Paper

New Zealand was spared the worst effects of the global financial crisis by a solid government balance sheet and an absence of the dubious financial practices that gave rise to the crisis. Nevertheless, the New Zealand government has been compelled to run large operating deficits with a subsequent increase in government debt. The Christchurch earthquakes, beginning in 2011, exacerbated the worsening fiscal position.

Our 2009 defence review, the first in over a decade, was crafted in this context, during the lowest point of the recession.

The review followed a typical top down process. We considered our national security interests, and the contribution defence makes to these.

We reviewed our strategic environment, with an eye to 2035. We considered the tasks the New Zealand Defence Force might conduct over that period, and then selected appropriate capabilities.

The review confirmed New Zealand’s long-standing security interests:

a safe and secure New Zealand, including its border and approaches;
a rules-based international order which respects national sovereignty;
a network of strong international linkages; and
a sound global economy underpinned by open trade routes.

The review also confirmed the value of maintaining a suite of modern defence capabilities, interoperable with our friends and partners, available to deploy into the South Pacific and beyond, in support of our interests.

The South Pacific features prominently in our policy. This is our region of immediate security interest, where we have a responsibility to respond to any major natural disaster or security event.

It is also an area comprising a number of fragile states that have needed external assistance, and will likely continue to need assistance.

What kind of a defence force do we need to support these interests? The White Paper concluded that we need:

land forces sufficient to deploy a mobile Combined Arms Task Group of 800 personnel for up to three years, or a number of smaller operations;
the air and sea capabilities to transport and sustain them; and
the capabilities to monitor and respond to contingencies in our maritime environment and elsewhere.

These capabilities will be able to work together as a Joint Amphibious Task Force in our region, or to deploy as components of coalitions led by our partners.

NZDF operations

These are also the types of capabilities we have drawn from in recent years to contribute to military operations in our near region, and much further afield.

I want to briefly discuss these, to show how we employ our Defence Force to further our foreign and security policy interests. And to show how much we achieve with a modestly sized force.

New Zealand has supported the international community’s efforts in Afghanistan since December 2001.

We have deployed a number of rotations of special forces, provided the Bamyan Provincial Reconstruction Team since 2003, and continuously provided staff officers to ISAF HQ and the United Nations.

We also deployed frigates and surveillance aircraft into the Gulf region in support of interdiction operations.

New Zealand has maintained an almost continuous military presence in Timor Leste since 1999, initially with an infantry battalion, and more recently with a 75 person peacekeeping force, which was recently withdrawn (five military personnel now remain).

In Solomon Islands, New Zealand has been a leading contributor to the Regional Assistance Mission to Solomon Islands since 2003, initially with an infantry company, and more recently with a rotating platoon, which has also withdrawn (eight military personnel now remain).

Reflecting improved security conditions, these three operations are in various stages of returning full responsibility to local forces. Bamyan will be one of the first Afghan provinces to transition fully, with our forces scheduled to leave this April.

Although we are withdrawing from Bamyan, this does not mean that we are withdrawing from Afghanistan completely. Rather our mission in Afghanistan is transitioning.

At last week’s ISAF Defence Ministers Meeting in Brussels, I announced around twenty seven personnel will undertake a range of training, planning and logistics roles as part of the ISAF mission.

In addition to these major operations, we have made long-running contributions to the Multinational Force and Observers in the Sinai, the UN Truce Supervision Organisation, and the UN missions in Iraq, Sudan and South Korea.

I should also note the constant contribution the New Zealand Defence Force makes to monitoring our Exclusive Economic Zone, supporting our operations in Antarctica, and readiness for counter-terrorism responses and civil defence in New Zealand and our region.

The NZDF played an indispensable role in responding to the Christchurch earthquakes, providing immediate logistic, medical, and security assistance.

So while we are a small defence force, we are a busy one. That is the way I think it should be.

It could easily be asked, however: ‘what is the value of a small player? How can they make an impact’?

The reality is that defence is a team game. The sum of the parts is often greater than the individual contributions.

In today’s world, where adversaries are often shadowy extremists with no respect for borders and even less for basic humanity, there is a real strength in sovereign nations large and small banding together.

It demonstrates to the world that there is a collective will to stand for what is right, and protect the innocent.

New Zealand may be a small contributor, but we are also a professional one. We do not shrink from confronting the enemy face to face.

New Zealanders have always excelled on the battlefield, and continue to do so. We are not hampered by a massive logistic tail. We roll up our sleeves and take on the tough jobs when that is needed.

These attributes are important. Sometimes it is not about the size of the dog in the fight, it is about the size of the fight in the dog.

Maintaining capability in a weakening fiscal environment

The challenge is how to keep the capability to conduct such operations in a weakening fiscal environment, with the cost of operating modern capabilities rapidly increasing, and the looming need to replace major land and air assets in the 2020s.

For New Zealand, the question is not so much about cutting defence spending to support the government’s fiscal position, but rather containing rapidly rising costs within a tight budget.

That budget has been around 1% of GDP in recent years, which is about right for our circumstances,

Facing rising costs, one option would have been to retreat into isolationism. To concern ourselves only with our near region, and our modest immediate security needs.

This is not the approach we chose. Direct security requirements do not drive our defence policy. Defence is part of our identity as an involved and active member of the international community.

Not only that, but growing uncertainty is the defining feature of our strategic environment. In this context it seems imprudent to make dramatic capability or funding cuts that we might later regret.

With our relatively modest capability base, there is also little scope to reduce depth without affecting breadth of capability.

To illustrate this point, in 2001, a previous government disbanded our air combat force, which consisted of one squadron of Skyhawks, and a training squadron.

Instead, we are holding defence funding constant, while carefully prioritising our capability plan, and transferring substantial resources from the middle and back of defence to our deployable capabilities.

This approach is allowing us to maintain our breadth of capabilities.

It goes without saying that industry has a part to play in improving efficiency. Our armed forces are not large enough to build and retain all the skills and capabilities that a modern defence force needs.

More and more we look to partnerships with industry – not only to retain defence capability, but to also provide sufficient mass to retain a commercial capability as well.

A good example of collaboration has been the relationship between Babcock – the NZ subsidiary of the British company – and our Navy.

Individually, neither us nor them can maintain the critical mass to underpins the ability to provide a range of marine services. By working together, both benefit. I am hoping that this relationship can strengthen.

Software is another area where industry is an integral player. The RNZAF in particular has a wide ranging partnership with major commercial software companies, to ensure that continuity and capability is maintained.

Our defence industry is not large, but it has some surprisingly advanced niche capabilities.

New Zealand based companies such as BECA, Pacific Aerospace, Rakon, Marops, and Safe Air are leaders in their respective fields.

They are all cost competitive and very capable companies. I encourage all of you to consider New Zealand industry when thinking of some of your own capability requirements.

Couple this with a permissive business environment, and it is well worth a look. We are sometimes overly modest about our capabilities. I invite you to take a closer look.

New Zealand Defence Force Reform programme

By 2014/15, the NZDF aims to save up to 17% of its total operating budget by transferring resources from its middle and back supporting functions to core military capabilities. ($350-400 million saved from a total operating budget of $2,200 million).

This was always recognised as a challenging target, but I’m pleased to note that, two years into the programme, the NZDF is well on track to achieving the savings target.

This has required some fundamental changes to how defence is organised.

To start with, the principal defence legislation (the Defence Act 1990) is being amended to make clear that the Chief of Defence Force (CDF) commands the armed forces directly, rather than through the Service Chiefs.

And the Chiefs themselves will be appointed by the CDF in consultation with the Minister.

This change is enabling the CDF to overcome any traditional Service barriers to move resources within defence, achieving efficiencies and alignment with central direction.

To give you some examples, the NZDF now has a single Logistics Command, Recruitment Organisation, Human Resources Service Centre, Personnel Executive, and Capability Branch. These functional units have replaced numerous single Service units.

This approach will be extended to core military capabilities, where it makes sense to do so, such as Health, Intelligence, and Military Policing.

One of the most difficult changes has been transforming non-operational positions filled by military personnel to civilian positions.

Given there are savings that can result from employing civilians rather than military staff in certain areas, there was a clear rationale for this initiative.

Savings have resulted, but the NZDF has learned some important lessons in change management.

These are some of the larger elements of the savings programme.

There are numerous smaller elements across defence, including: less use of consultants; a smaller defence diplomatic footprint overseas; consolidation of libraries and bands; rationalising vehicle fleets; reducing allowances; and reorganising our reserve forces. Significant savings may also be released from a consolidated defence estate.

To encourage a culture of innovation and continuous improvement, the NZDF is introducing the Baldrige Criteria for Performance Excellence Framework and Lean Six Sigma.

The NZDF will benchmark its performance against relevant public and private sector organisations.

As you can see, change is occurring across the Defence Force, with the sole of objective of releasing resources for deployable capability.

Capability programme

Our reform programme is enabling us to pursue a range of capability upgrades.

Last December I announced the release of tenders to upgrade the self-defence and sensor capabilities of the Royal New Zealand navy frigates HMNZS Te Kaha and HMNZS Te Mana.

This will address issues of obsolescence with the ships’ technology and ensure the vessels are a credible capability which can operate in the South Pacific and wider Asia Pacific region.

The Government is also looking seriously at the option of acquiring the ex-Australian Navy Seasprite helicopters to operate from the frigates, and our patrol fleet.

In December, I also announced the release of tenders for a new military pilot training capability.

This project will lead to the acquisition of dedicated advanced pilot training aircraft. Our practice of using non-specialised aircraft for this role had contributed to a decline in airmanship.

A wide-ranging programme is gradually replacing the NZDF’s land transport fleets.

The immediate priority is to acquire new medium and heavy operational vehicles. New Zealand officials are working closely with the UK Ministry of Defence to leverage off the much larger UK contract with the truck manufacturer, MAN.

A number of long-running projects are also in their delivery phase: upgrades of our C130 Hercules and P3 Orion aircraft, and delivery of A109 training/light utility helicopters, and NH90 medium utility helicopters.

Our arrangements for procuring capability have been overhauled in recent years, drawing in some ways on the UK experience. We have adopted an enhanced version of the two-pass business case model developed in the UK, and the gateway project assurance process.

These are bringing much improved rigour and scrutiny to capital projects across government, not just in defence.

We have also introduced independent non-executive directors to our principal governing body, and appointed a civilian Chief Operating Officer. Collectively, these measures are bringing a much-needed professionalism to our procurement activities.

Longer-term and conclusions

The delivery of these projects will provide New Zealand with defence capabilities which are able to respond flexibly to varied and complex tasks both at home and offshore. And enable New Zealand to continue participating as a valued partner of the UK.

A funding challenge does remain, however.

The New Zealand Defence Force will remain obliged to keep its supporting functions as lean as possible. It will also need to carefully consider and prioritise its spending proposals if we are to retain our current breadth of capability.

I expect that tight fiscal restraint will remain the order of the day for many years to come.

I’m confident that my comments today on the New Zealand experience will echo some familiar themes for you, and hopefully offer some food for thought on managing the UK’s own challenges.

As I noted at the outset, the differences between New Zealand and the United Kingdom are differences of scale, not of fundamental nature.

The challenges we face of aligning policy objectives, with capability plans, and limited funding are essentially the same. That is why dialogues such as this are useful to both New Zealand and the United Kingdom.